Wall St tumbles on worry about more bank failures

U.S. stocks sank on Tuesday on increasing worries that there could be more bank failures and concerns that equity prices may have run ahead of the economic recovery.

A sharp drop in bank stocks in late morning trading pulled the Dow average and the broad Standard & Poor's 500 down almost 2 percent, with investors fearing a revival of balance-sheet trouble in the financial sector.

The chatter from (some) hedge funds is that there is a bank default, said Jon Najarian, a founder of Web information site optionmonster.com.

The KBW bank index slumped 3.8 percent, with shares of Citigroup , down 7.2 percent at $4.64, among the top drags.

Stocks had been up earlier after data from the Institute for Supply Management showed U.S. manufacturing expanded in August for the first time since January 2008.